American Home Assurance Company vs.

Chua
[GR 130421, 28 June 1999] First Division, Davide Jr. (CJ):
Facts: American Home Assurance Company (AHAC) is a domestic corporation
engaged in the insurance business. Sometime in 1990, Antonio Chua obtained from
AHAC a fire insurance covering the stock-in-trade of his business, Moonlight
Enterprises, located at Valencia, Bukidnon. The insurance was due to expire on 25
March 1990. On 5 April 1990 Chua issued PCIBank Check in the amount of
P2,983.50 to AHACs agent, James Uy, as payment for the renewal of the policy. In
turn, the latter delivered Renewal Certificate to Chua. The check was drawn against
a Manila bank and deposited in AHACs bank account in Cagayan de Oro City. The
corresponding official receipt was issued on 10 April. Subsequently, a new insurance
policy was issued, whereby AHAC undertook to indemnify Chua for any damage or
loss arising from fire up to P200,000 for the period 25 March 1990 to 25 March
1991.
On 6 April 1990 Moonlight Enterprises was completely razed by fire. Total loss was
estimated between P4,000,000 and P5,000,000. Chua filed an insurance claim with
AHAC and four other co-insurers, namely, Pioneer Insurance and Surety Corporation,
Prudential Guarantee and Assurance, Inc., Filipino Merchants Insurance Co. and
Domestic Insurance Company of the Philippines. AHAC refused to honor the claim
notwithstanding several demands by Chua, thus, the latter filed an action against
AHAC before the trial court.
In its defense, AHAC claimed there was no existing insurance contract when the fire
occurred since Chua did not pay the premium. It also alleged that even assuming
there was a contract, Chua violated several conditions of the policy, particularly: (1)
his submission of fraudulent income tax return and financial statements; (2) his
failure to establish the actual loss, which AHAC assessed at P70,000; and (3) his
failure to notify AHAC of any insurance already effected to cover the insured goods.
These violations, AHAC insisted, justified the denial of the claim.
The trial court ruled in favor of Chua. It found that Chua paid by way of check a day
before the fire occurred. The check, which was deposited in AHACs bank account,
was even acknowledged in the renewal certificate issued by AHACs agent. It
declared that the alleged fraudulent documents were limited to the disparity
between the official receipts issued by the Bureau of Internal Revenue (BIR) and the
income tax returns for the years 1987 to 1989. All the other documents were found
to be genuine.
Nonetheless, it gave credence to the BIR certification that Chua paid the
corresponding taxes due for the questioned years. As to Chuas failure to notify
AHAC of the other insurance contracts covering the same goods, the trial court held
that AHAC failed to show that such omission was intentional and fraudulent. Finally,
it noted that AHACs investigation of Chua's claim was done in collaboration with the

representatives of other insurance companies who found no irregularity therein. In

fact, Pioneer Insurance and Surety Corporation and Prudential Guarantee and
Assurance, Inc. promptly paid the claims filed by Chua. The trial court ordered AHAC
to pay Chua P200,000.00, representing the amount of the insurance, plus legal
interest from the date of filing of the case; P200,000.00 as moral damages;
P200,000.00 as loss of profit; P100,000.00 as exemplary damages; P50,000.00 as
attorneys fees; and Cost of suit. On appeal, the assailed decision was affirmed in
toto by the Court of Appeals. The Court of Appeals found that Chuas claim was
substantially proved and AHACs unjustified refusal to pay the claim entitled Chua to
the award of damages. Its motion for reconsideration of the judgment having been
denied, AHAC filed the petition for review on certiorari.
Issue: Whether there was a valid payment of premium, considering that Chuas
check was cashed after the occurrence of the fire.
Held: YES. The general rule is that unless the premium is paid the insurance policy
is not valid and binding. The only exceptions are life and industrial life insurance.
Whether payment was indeed made is a question of fact which is best determined
by the trial court. The trial court found, as affirmed by the Court of Appeals, that
there was a valid check payment by Chua to AHAC. Well-settled is the rule that the
factual findings and conclusions of the trial court and the Court of Appeals are
entitled to great weight and respect, and will not be disturbed on appeal in the
absence of any clear showing that the trial court overlooked certain facts or
circumstances which would substantially affect the disposition of the case.
The Supreme Court sees no reason to depart from this ruling. According to the trial
court the renewal certificate issued to Chua contained the acknowledgment that
premium had been paid. It is not disputed that the check drawn by Chua in favor of
AHAC and delivered to its agent was honored when presented and AHAC forthwith
issued its official receipt to Chua on 10 April 1990. Section 306 of the Insurance
Code provides that any insurance company which delivers a policy or contract of
insurance to an insurance agent or insurance broker shall be deemed to have
authorized such agent or broker to receive on its behalf payment of any premium
which is due on such policy or contract of insurance at the time of its issuance or
delivery or which becomes due thereon.
Herein, the best evidence of such authority is the fact that AHAC accepted the
check and issued the official receipt for the payment. It is, as well, bound by its
agents acknowledgment of receipt of payment. Section 78 of the Insurance Code
explicitly provides that "An acknowledgment in a policy or contract of insurance of
the receipt of premium is conclusive evidence of its payment, so far as to make the
policy binding, notwithstanding any stipulation therein that it shall not be binding
until the premium is actually paid." This Section establishes a legal fiction of
payment and should be interpreted as an exception to Section 77.